TRIS Rating Co., Ltd. has affirmed the company and issue ratings of Major Cineplex Group PLC (MAJOR) at “A-” with “stable” outlook. The ratings reflect MAJOR’s leading position in the Thai movie exhibition industry, prime location of its properties, strong potential to expand upcountry, and capable management team. These strengths are partially offset by exposure to uncontrollable factors such as the number of films released, film popularity, shortening theatrical release periods prior to the distribution of DVD/VCD (digital versatile disc/video compact disc), competition from other forms of entertainment, and the proliferation of pirated home video products. The economic downturn and intensified political situation have also negatively affected MAJOR’s performance.
The “stable” outlook reflects the expectation that MAJOR will be able to maintain its leading market position in the movie exhibition industry and sustain an acceptable level of performance. Investment opportunities or dividend payments should be prudently considered and not adversely affect the company’s financial position and liquidity. If the ratio of secured debt to total assets increases significantly, the issue rating could be lowered.
TRIS Rating reported that MAJOR is the largest movie exhibitor in Thailand, with approximately 80% market share in terms of first-week box office sales. The company was founded in 1994 by Mr. Vicha Poolvaraluck, who currently owns 37% of the total shares. The five principal lines of business are cinema, bowling and karaoke, advertising media, space rental and services, and film distribution. As of September 2009, MAJOR operated 46 cinemas, with a total of 341 screens and more than 84,000 seats. MAJOR has 26 cinema branches in Bangkok and vicinity, and 20 branches upcountry. MAJOR also has 26 bowling and karaoke branches, with 468 bowling lanes and 305 karaoke rooms. In addition, MAJOR manages 30,714 square meters of space for rent. In Bangkok and the surrounding provinces, MAJOR has located its theaters across many business centers and key communities, using various brands to capture a broad range of customer groups. MAJOR plans to enhance its revenue base by increasing the number of branches or multiplex cinemas where appropriate to increase coverage and capitalize on the growing popularity for Thai films upcountry.
TRIS Rating said, MAJOR’s operating performance is partly supported by its strong relationships with film distributors. Admissions revenue is related to the number of films released as well as the quality and popularity of the films. However, MAJOR faces several significant threats: the proliferation of pirated home video products, a shorter time between theatrical release and distribution through DVD/VCD, and competition from other entertainment alternatives. These threats could dilute the appeal of an out-of-home motion picture offering. However, no other form of entertainment is as yet a perfect substitute for the moviegoing experience. In addition, other external factors such as the economic downturn, political unrest, and the A/H1N1 flu also reduce the confidence of consumer spending which adversely affects the advertising business and the bowling and karaoke business.
In 2008, MAJOR’s total revenue was Bt5,328 million, an 8.2% decrease from the previous year. Admission revenue decreased due to the release of less attractive films and the postponement of some blockbuster films. About half of total revenue was from the cinema business. For the first nine months of 2009, total revenue decreased slightly by 1% year-on-year (y-o-y) to Bt3,908 million though admission revenue grew by 4% y-o-y. The economic turmoil adversely affected advertising sales and bowling and karaoke revenue which decreased by 44% y-o-y and 14% y-o-y, respectively. The ratio of earnings before interest, tax, depreciation, and amortization to sales increased from 34% in 2007 to 38% in 2008, mainly due to margin improvements in the film distribution and space rental business, topped with reductions in selling and administration expenses. However, the profit margin declined to 35% for the first nine months of 2009. The drop was due to a huge decrease in advertising revenues which generated high margins, weakened margins in the film distribution business, aggressive promotion of the bowling and karaoke business, and rising selling and administration expenses. Total debt rose from Bt6,212 million in 2007 to Bt6,485 million in 2008 and to Bt7,406 million at the end of September of 2009. MAJOR borrowed more long-term debt to finance investments and branch expansion, and consolidated the debt from M Picture Entertainment PLC (MPIC). The total debt to capitalization ratio increased from 53.2% in 2007 to 56.1% in 2008 and to 59.9% at the end of September 2009. Funds from operations (FFO) were maintained at over Bt1,200 million annually during 2006-2008. The FFOs to total debt ratio was 20%-21% during 2006-2008 while the earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio was maintained at an average of 4.5 times. For the first nine months of 2009, FFOs were Bt948 million, driving the FFOs to total debt ratio to 14% (non-annualized). The EBITDA interest coverage ratio was 3.7 times over the same period. -- End
Company Rating: Affirmed at A- Issue Rating: MAJOR126A: Bt1,500 million senior debentures due 2012 Affirmed at A- Rating Outlook: Stable
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